(This article first appeared in Real Estate Investor's Monthly.)

Russ Whitney™ is a real estate investment guru with TV infomercials and all that. He is noteworthy in that he seems to draw the most virulent complaints of any guru I hear about. He is also noteworthy at my house because he has sued me for trademark infringement and libel.

So I bought his book Building Wealth, From rags to riches through real estate. After all I had heard about him, I must admit that I was surprised that the book was not quite as bad as I expected.

High school dropout

In order to qualify for a real estate guru secret decoder ring, you have to have humble origins. Whitney's mother left when he was three. His father married a “stereotypical wicked stepmother” (p. 22). Then his father died when he was 14. He ran away and dropped out of high school. (He later got a General Equivalency Diploma, but has stopped fessing up to that in recent years. Building Wealth makes no mention of the fact that he really has that high school diploma—the G.E.D.—and repeatedly says he is a dropout.)

Not that that stops him from pontificating about what they teach in colleges, i.e., figuring out all the reasons why something won't work. I do not recall any such course at my college, but I guess Whitney would be the expert on what they teach in colleges.

After touting his own lack of formal education and the virtues of being a dropout at some length, he says he plans to send his own children to college. Do as I say, not as I did or advocate to my readers. Neither of the first two graduated from college. One never entered.

He got a short-order cook job by lying about his age, worked as a telemarketer (Hmmm), and drove a taxi using a fake drivers license. I admire his work ethic, but he would not be the poster boy for working smart rather than hard—or for ethics.

The older I get, the more humble my origins become

I once saw a tee shirt that said, “The older I get, the better I was.” Whitney suffers from that problem. Only in his case it's, the older I get, the more humble my origins become.

The back cover of Building Wealth, which is copyright 1994, says, “Russ Whitney was a twenty-year-old high school dropout working in a slaughterhouse for five dollars an hour when he set out to become a millionaire.” Russ Whitney seems to say otherwise in his earlier book Overcoming the Hurdles and Pitfalls of Investing in Real Estate. That book was published in 1984 by Mark O. Haroldsen's National Institute of Financial Planning. Mark Haroldsen is a real estate investment guru. Here's part of what I said about Haroldsen at my guru rating Web page:

“Author of How to Awaken the Financial Genius Within You. Publisher of the now quarterly Financial Freedom Report. His main claim to fame is that he invented the densely-worded, full-page, magazine, direct-mail ad to sell his book. The novelty of that trick apparently has long since worn out. I haven't seen it in years.

“Financial Freedom Report was accused of 83 counts of deceptive sales practices by the Utah Division of Consumer Protection according to a 5/19/97 KSL-TV story in Salt Lake City. Utah had received over 900 complaints about Financial Freedom Report nationwide since 1993 but only took action based on the 83 complaints from Utah residents. KSL-TV said the Commonwealth of Virginia had also taken action against Financial Freedom Report.

“The Wisconsin State Bureau of Consumer Protection published a Guide for Wisconsin TV stations which lists several "Questionable infomercials," among them those of Financial Freedom Report.

Refusal to acknowledge Haroldsen

Whitney apparently got the idea to go into real estate from Haroldsen's How to Awaken… book. But he refuses to acknowledge the name of the author or the title of the book. He does not even mention How to Awaken…Haroldsen in Overcoming…, which was published by Haroldsen! (He does say that Haroldsen has “among the best seminars” on page 41 of Overcoming.)

Seems to me he ought to acknowledge the contribution of Haroldsen to his career simply because Haroldsen deserves the credit. Furthermore, he ought to tell his readers about Haroldsen's book if it was any good. I am not a Haroldsen fan, but I find Whitney's refusal to acknowledge his mentor and to recommend him to his readers to be amazingly selfish. Does Whitney have such a monstrous case of insecurity that he cannot acknowledge that any other real estate author has anything of value to say—even his own mentor? Apparently.

$5 an hour

Whitney says he made $5 an hour at “the slaughtershouse” in 1976. $5 an hour sounds pretty meager, doesn't it? Well, let's think about it. We're talking 1976 here. That's when Whitney was 20. You can use a nifty little online calculator to adjust any past amount for inflation at http://minneapolisfed.org/research/data/us/calc/. If you put in the year 1976 and $5 per hour and translate it to 2005 dollars, it is $17.10 an hour in 2005 dollars.

Whitney says that with overtime he made about $300 per week at the “slaughterhouse.” $300 per week x 52 weeks per year = $15,600 per year. Put that in the inflation calculator and it translates to $53,352.55 a year in 2005 dollars. Whitney's wife was also working there at the time. If she made the same, the two of them were making 2 x $53,352.55 = $106,705.10 a year in 2005 dollars. And this would be the “rags” period in what the subtitle of Building Wealth calls his “rags to riches” story.


And what about this “slaughterhouse” stuff? He worked for Tobin Packing Company in Albany, NY. He was a union laborer. For a time, he shackled pigs in preparation for someone else killing and butchering them. Isn't calling it a “slaughterhouse” a bit melodramatic and Dickensian? Was it across the street from Ebeneezer Scrooge's office? Around the corner from the orphanage and up the street from the poor house?

What do you think the chances are that when he was asked where he worked at the time, he answered, “The slaughterhouse?” I'll bet his answer to that question was, “Tobin Packing.”


In Building Wealth, Whitney is always a “high school dropout.” But on page 2 of Overcoming the Hurdles and Pitfalls of Investing in Real Estate, published ten years earlier, he says, “…my educational background peaked only with a G.E.D. diploma.” He never describes himself as a “high school dropout” in that book.

My wife has a G.E.D. In fact, the last year she attended high school was her freshman year. Whitney stayed in high school until his junior year. I asked her if she had ever described herself as a “high school dropout.” “Of course, not,” she said.

Like Whitney, she studied her high school courses at home and took a test. (Her father was stationed in Ethiopia at the time. There were no English language schools nearby.) Unlike Whitney, she graduated from Drexel University with a B.S. and Harvard with an M.B.A. But as far as high school is concerned, my non-high-school-dropout wife only has one-third the formal high school attendance of “dropout” Whitney.

At best, he can claim to have been a temporary or former high school dropout, but it is disingenuous at the very least for him to describe himself only as a “high school dropout” in Building Wealth and elsewhere. By itself, this is a relatively harmless bit of B.S, but it ought to make you wonder what else he is B.S.ing you about.

‘Lousy childhood'

On page 18 of Building Wealth, Whitney says, “I easily could have used my lousy childhood as an excuse for never achieving anything significant.”

Once again, his “lousy childhood” appears to have come into being between the 1984 book Overcoming… and the 1994 publication of Building Wealth. He makes no mention of any childhood problems at all in Overcoming… or his other 1984 book about Locating, Financing, and Analyzing Real Estate.

Who cares about Whitney's childhood—unless it involved real estate investment? My wife used to help her grandfather with his real estate business when she was a kid. She would stamp his mortgage checks “for deposit only” and help him pound survey stakes into the ground at rural lots. She said her fond memories of her grandfather transferred to me to an extent when I first told her I was a real estate guy. If my wife ever wrote a book on real estate, she should probably mention her grandfather's involvement in the field and her childhood helping him.

I cannot recall any other real estate investment authors talking about their childhood in their books. Millions of more successful people than Whitney or me had just one parent or no parents.

Having a less-than-ideal childhood may be the norm rather than the exception. It actually has some advantages. It makes you hungry for something better, which is apparently the understatement of the year with regard to Whitney. He appears to be driven to an unhealthy degree—apparently by his childhood. Having a drunk father caused me never to take a drink, which was a very good thing.

According to Whitney, his biological mother “left” when he was three. Most people don't remember anything from before they were four, so one suspects that he only knows about his mother leaving because older relatives told him about it. His father apparently divorced his biological mother and remarried a woman Whitney refers to as his “wicked stepmother.” He says she held his hand over a gas flame and told him he was, “…no good, would never amount to anything, and would probably spend most of his life in jail.”

Well, that sounds pretty rotten, but I would like to talk to her and get her side of it. It may be that he did some bad stuff and that the stepmother behavior he describes was appropriate, especially for the time—around the early sixties. Maybe the gas flame thing was to persuade him to stop endangering himself and his family by playing with matches after he had been told several times using less dramatic, and less effective, teaching aids. Maybe the jail comment was in response to his repeatedly getting in trouble with the police (I do not have any evidence other than his mother's comment and his own vague references that he was in trouble with the police as a youth).

And maybe neither the gas flame nor the jail accusation ever happened.

Whitney says his father died when he was fourteen. I confirmed that. That's rough if you love your dad. Although Whitney says his dad took his “wicked stepmother's side” when mediating disputes between the two of them. That suggests that his stepmother was in the right. But, again, Whitney is not the first kid to be orphaned. Many orphans never knew their parents at all.

After his father's death, Whitney lived with his stepmother, an aunt, and a half sister. Sounds a lot better than a foster home or orphanage. But he still ran away from all of them. Seems like he should have found at least one relative he could get along with—after all, he was just a teenager. He says he was “emotionally devastated” and “had to get a job to support myself” at age 14!

I am extremely skeptical of his claim that he had to get a job to support himself at age 14 or any pre-18 age. This was 1970, not 1930. He had a stepmother and an aunt who were apparently willing and able to provide for him. If not, there were a zillion programs back then including food stamps, social security benefits for children of deceased parents, foster care, and orphanages, to make sure a kid was supported without having to quit school and go to work.

In general, I would like to hear the stepmother's, aunt's, and half-sister's version of the events before I draw any conclusions. Until then, either Russ Whitney had all rotten relatives or he failed to make an adequate effort to get along with the relatives who were willing to care for him. On page 18 of Building Wealth, he admits to having a “bad attitude” as a teenager. That sounds more like he was a lousy child than a kid who had a lousy childhood.

‘Through real estate'

The subtitle of Building Wealth is “From rags to riches through real estate.” He does appear to be rich now, but “through real estate?” Exactly which real estate was that?

I went to Schenectady, NY, the site of his first six years of investing in real estate. I did not see much evidence that he made any money there at all in real estate. Public documents indicated he had trouble paying his bills for oil and power and other services, property taxes, and a judgment against him. He had a number of housing code violations. He threatened to declare bankruptcy to get out of paying all the judgment, which was for over a million dollars. He deeded one duplex to a tenant for nothing according to the public records. In his book Overcoming…, Whitney said it was in return for installing five ceramic tile baths and a furnace at his other buildings.

In Overcoming the Hurdles and Pitfalls of Investing in Real Estate, he said he had great trouble selling his other buildings. He said he was willing to settle for just $10,000 profit per building—hardly “riches”—but the market refused to pay him even that small amount.

He gave his Realtor® an option on a property. According to the public records, it apparently was never exercised.

He had to “lower his price” and take back a mortgage on his Lincoln Avenue properties. In 1982, he admits “we weren't showing much, if any, profit on the buildings.” He says his property manager was embezzling money from him by claiming apartments were vacant when they were not and by overcharging him for maintenance. He could not find a tenant for his NY home for an extended period. With regard to his final extraction from Schenectady, he says, “I had to really concede with terms. I also dropped in price.” (Overcoming… page 36) He sold a number of properties in one package for just $10,000 cash—not $10,000 per property—and took back a mortgage.

Overall, Whitney said he allowed himself to become exactly the sort of person he seeks when looking for bargains: a “motivated seller” and thereby took a bath.

This is all very interesting and instructional as to what not to do. But where are the “riches through real estate?” Sounds more like he was lucky to escape his Schenectady real estate adventures with the shirt on his back. In general, his Schenectady real estate investments sound to me like he was a below-average, beginning investor who made more than his share of mistakes. He talks a good game, but when you examine all his books and the pertinent public documents, it appears he was all screwed up from start to finish in New York.

Many people suspect that guys like Whitney claim they made most of their money through real estate or whatever they are selling advice on, but really made it from selling books, seminars, and so forth. I suspect they are quite right about that with regard to Whitney. He appears to have tried to make money in real estate for about six years, was not very successful, then became a famous lecturer and author selling the “secrets” of his non-existent or near non-existent “real estate success.”

‘Made $11,000 in three weeks'

On page 18, he says he “made” $11,000 three weeks after he read a book—apparently Mark Haroldsen's How to Awaken the Financial Genius…That book ain't that good. No book is.

So exactly how did he “make $11,000” in three weeks from reading a get-rich real estate book?

A brief version of the story appears on pages 120 and 121 of Building Wealth. He gives more detail in previous books. Basically, he refinanced his home. According to the deed in the county recorder's office, he had purchased the home on 3/11/77 putting $4,000 down. Since the recorded mortgage was $14,500, the purchase price was apparently $18,500. He says he spent another $1,500 fixing it up to give a total cost of $20,000. Actually, the cost was higher because he and his brothers in law contributed much free labor.

According to Building Wealth, it had a $14,000, 8.5%, 15-year, seller mortgage and Whitney refinanced it for $18,000. That gave him $4,000 cash after he paid off the seller mortgage. He obtained the loan by telling the mortgage lender that he wanted to install $4,000 of aluminum siding on the property. That was the amount of an estimate from a siding guy for installing the siding.

The original amount of the mortgage was $14,500 according to the actual documents recorded. It may have been paid down to $14,000 when he refinanced 15 months later.

Does it sound to you like Whitney has “made” money on this deal so far? Me neither.

Whitney also arranged for the seller to modify his $14,000 first mortgage to a $7,000 mortgage. That would mean the total mortgages on the property would be $18,000 + $7,000 = $25,000. Whitney says he “felt certain that the house was then worth $25,000 to $30,000.” Property owners' appraisals of their own properties should be taken with a grain of salt. I'll use the lower figure.

The document modifying the amount of the previous owner's mortgage to $7,000 was recorded in mortgage book 942 pages 20-22. Then the “subordination agreement” purportedly making that mortgage subordinate to a mortgage to Schenectady Trust Company was recorded in book 942 at pages 23 and 24. The subordination agreement document, which I got from the recorder's office, seems amateurish—subordinating to “any and all indebtedness” to Schenectady Trust. I would not think that was enforceable. Based on my knowledge of real estate law, I think you would need to spell out specifically the terms of the mortgage to which you are subordinating or simply identify the mortgage in question in the public records. Then the Schenectady Trust Company “first” mortgage for $18,000 was recorded in book 942 at pages 25-28.

The fact that the subordination agreement was probably unenforceable strongly suggests that Schenectady Trust did not know about it. Or more likely, that they assumed it would be paid off but did not make sure of it. Had they known that such a mortgage was recorded before their “first” mortgage in the mortgage books, it is all but certain that they would have insisted that their attorney prepare any subordination agreement. A bank attorney would almost never come up with an unenforceable agreement.

Also, it would have been cleaner to just pay off the original seller first, then record a new second after the Schenectady Trust first. Because of the inadequately worded subordination agreement, I suspect that Schenectady Trust really got a second mortgage in spite of insisting that they have a first.

I cannot tell whether Schenectady Trust knew that the existing first was not being paid off in full, but rather was being paid half off and “subordinated” to the new first. On page 121 of Building Wealth, Whitney says, “…the banker showed up with two checks: One payable to me for $4,000, and one payable to the seller for $14,000.” That strongly suggests that the banker did not know that Whitney was getting half the $14,000 and that the first was not being totally paid off.

On page 2 of Overcoming…, he says, “Well, the bank came out to appraise the house and said they would lend $18,000, but they would have to first mortgage, indicating that I would have to pay off the existing first” [emphasis added]. Again, this strongly suggests that Schenectady Trust did not know that Whitney was only paying off half the first and that a mortgage for the other half would remain on the property. I am astonished that the Trust company and title company did not make sure they had either a better subordination agreement or a payoff of the first before recording the new second.

I am also inclined to believe that Schenectady Trust did not know the full story because of numerous subsequent deals that Whitney brags about in his books. Time and again he brags of misleading lenders as to the cost of improvements and the intention to have a seller give him a second or third mortgage after a new first has been originated. In one case he admits to “deception.” In others he lists the “real” terms of the deal and the “lender” terms—that is, the more conservative terms the lender was shown.


Is this legal? Whitney says, “all the paperwork was prepared by attorneys so it was safe and legal for both of us.” Gimme a break!

The mortgages are not safe for any of the three parties.

Whitney has overfinanced by putting $25,000 worth of mortgages on a $25,000 house. His total costs of paying two mortgages plus the other carrying costs like property taxes, insurance, repairs, and so forth, mean he and his wife are paying far more to live at 3160 Guilderland than they should.

The first mortgage is not safe for the bank. It is well known in the mortgage industry that the main cause of defaults and losses is lack of equity—not divorce, losing one's job, and so forth. When the homeowner/borrower has equity in the property, he will fight to defend it. When he has no equity, as is the case with Whitney in this deal, the borrower is far more likely to walk away if he has financial difficulty. Also, they seemed to be counting on the installation of the aluminum siding to increase the value and thereby increase the security of the mortgage.

Whitney said he walked away with the excess loan proceeds (See below). That suggests that Whitney did not install the siding because he would have had to pay the siding contractor if he did. He says he did have the siding installed. So I would then point out that he must not have pocketd the excess loan proceeds tax free. The siding contractor pocketed the loan proceeds.

Finally, the deal is extremely unsafe for the second mortgage lender. In the event of a default and mortgage, the property will typically sell for 5% to 20% less than its current market value. That will pretty much wipe out the second mortgage. Another way to look at it is what would the previous owner be able to get for his second mortgage if he tried to sell it for cash. Little or nothing. Indeed, I suspect the prospective buyers would laugh in his face. They would regard the second as a sort of lottery ticket—worth something, but not much.


Whitney says, “We closed [the new first mortgage], the banker left and the seller and I went into the next room to complete the deal.”

I can't say for sure without seeing the loan applications and talking to the bankers in question, but based on my 33 years knocking around the real estate industry, this sounds like a “sneaky second.” A “sneaky second” is a second mortgage which is put on a property, but not disclosed to a first mortgage lender. Why is it not disclosed? Because the first mortgage lender would not make the loan if they knew about it.

Whitney says the “banker left.” Why would he leave? Because he thought it was over. Why would he think that? Most likely because he was not told that the previous owner was, in effect, going to make a new hard-money, second mortgage loan to Whitney.

Whitney says the seller and he, “went into the next room to complete the deal.” Why would they do that? Why not stay in the first room? Title companies usually charge for the rooms. Why pay two room charges? Once again, probably to conceal the second mortgage from the bank.

Whitney says the name of this technique is “seller subordination.” Bull! Why would we real estate people call it that? The second lender in this transaction is not the seller. He sold the property to Whitney 15 months before. Back then he was the seller. Now he's the former owner and second-mortgage holder. I already told you the real name in the industry for this technique: “sneaky second.”


What this appears to be is two illegal acts.

1. Telling the bank that the $4,000 cash-out proceeds were going to be invested in aluminum siding on the mortgaged property if, in fact, they were not would be illegal. If, as Whitney claims, he did put the siding on, the loan application was not illegal. Saying you pocketed the money when you did not in a book is also not illegal because of the First Amendment.
2. Concealing from the bank the plan to place a $7,000 second mortgage on the property.

What laws prohibit this stuff? With regard to the siding, 18 USC 1014 comes to mind first. If the loan involved HUD, like a Title I home improvement loan, 18 USC 1012 comes to mind. When you sign a loan application, these federal laws are generally cited in the statement above where you sign. They prohibit false statements to federal lenders. Banks are generally federal lenders because of federal deposit insurance.

With regard to the possible concealment of the second mortgage from the bank, 18 USC 1001 comes to mind. That law is also often cited in the sentence just above where you sign a mortgage application. The app my wife and I signed in 10/02 to refinance our home cited this statute.

When the government prosecutes this sort of stuff, they also often invoke the mail fraud statute 18 USC 1341. Mail fraud is a misnomer. You do not have to mail a fraudulent document to be guilty of mail fraud. You cannot avoid mail fraud by using Federal Express or hand carrying everything. All you need to do is commit fraud, and anyone in the deal send or receive anything by mail as part of the transaction.

If you commit mail fraud more than once in a ten-year period, you can be charged criminally or civilly under the federal racketeering statutes: 18 USC 1961-4. The bank could actually sue you civilly under 18 USC 1964 if you did two deals that involved mail fraud in a ten-year period. Furthermore, if they win, they get triple damages.

Another statute the government frequently invokes with regard to mortgage fraud is 18 USC 371 or conspiracy. This would be a hazard to both Whitney and the previous owner/second mortgage lender. The essential elements of federal conspiracy are two or more people not only conspiring to defraud someone connected to the federal government (lenders are connected by federal deposit insurance and federal charters), but actually doing some act to bring the conspiracy to fruition.

These federal laws are all felonies. That is, the punishment for violating them is a fine and/or prison time.

State law

What about state laws? There are two kinds of state law: common law and statutes. Common law is law descended from England. It is based entirely on court decisions. All common laws are civil only. There are no criminal common laws. Statutes are actual laws passed by the legislature and signed by the executive or having enough votes to override his veto. The federal felonies listed above are all statutes. State statutes can be felonies, misdemeanors, or civil violations.

Here are some common laws that might be violated by lying to a lender about your intent to put aluminum siding on a house and about concealing your intent to place a second mortgage on the property.

I'll research the New York Statutes that might be triggered by this deal later.

Tax-free cash

Finally, Whitney says he, “walked away…with $11,000 in tax-free cash.” Well, duh. It's an income tax, not a cash tax. All he did was borrow $11,000 more than he needed to pay off the old mortgage. Loan proceeds are not taxable income. He did not “make” $11,000 in any sense of the word.

The fact that he brags about “walking away” with the whole $11,000 appears to indicate that $4,000 of it did not end up in the pocket of an aluminum-siding installer as the bank was promised.

How-to book

It's not just what Whitney brags that he did. This is a how-to book. He is urging his readers to follow his example. If you tried to do what Whitney says he did in this deal, you could lose your credit, reputation, and even your liberty. That is, you could be convicted of one or more crimes and go to jail. Furthermore, it is very likely that you would not be able to make the monthly payments on so much excess financing. So if the legal violations did not get you, inability to make the payments probably would. You would fall behind, thereby lose your good credit, and possibly lose your home to foreclosure.

Banks do not turn down loans like this when they know all the facts because they are mean or stupid. They turn them down because they have hundreds of years of experience and know what is likely to work and what is not. Generally, if no lender will give you the loan, you probably shouldn't want the loan.

I cannot say for sure that Whitney broke the law in this deal. I don't know all the facts. But I know a lot from his books and the public records and normal practices in the real estate industry. I would say the probability is above 90% that he committed multiple law violations in this deal. What I do know for sure is that it is extremely irresponsible to put this deal in a how-to book with no warnings regarding all the legal issues I have just discussed.

Sale of the house

On 6/29/82, Whitney sold this house on a land contract along with three properties on Eagle Street in Schenectady for a total of $10,000 in cash and he took back a mortgage for $36,500. On October 30, 1985, Whitney deeded the house to the land contract buyers and paid $108 in transfer taxes.

A month and a half later, on 12/11/85, the land contract buyers deeded the house to some buyers and paid $170 in transfer taxes—a 57% price increase in 42 days—and they took back no mortgage when they sold. Forget Russ Whitney's Building Wealth. Get the book written by the two guys who bought the house from Whitney (One is now a prominent Schenectady Realtor®). Whitney sounds like some inept beginner who got snookered by a couple of guys who really knew what they were doing.

On 12/12/85, Schenectady Trust recorded a discharge of their $18,000 mortgage and the guy who sold Guilderland to Whitney recorded a discharge of the $7,000 second.

Ultimately, how much Whitney “made” on this deal is the difference between what he bought it for and what he sold it for.

He sold the house as part of a four-property package. He got $10,000 in cash for all four properties. If we crudely allocate the cash and mortgage taken back 1/4 to each of the four properties, Whitney got $10,000 ÷ 4 = $2,500 in cash for the home. Whitney put down $4,000 in cash in 1977, says he spent another $1,500 on fix-up, for a total cost of $18,500 + $1,500 = $20,000. So the total cash he put in was $4,000 + $1,500 = $5,500. Since he got back only $2,500, that's a net loss of $5,500 - $2,500 = $3,000 in cash.

In the four-property sale, Whitney also took back a $36,500 mortgage. If we again divide by four it means the amount of the mortgage Whitney took back on the house was $36,500 ÷ 4 = $9,125 in 1982. Roughly speaking, he traded the diminution in cash—$5,500 - $2,500 = $3,000—for a $9,125 third mortgage. He also spent a lot of his own labor and that of his brothers in law fixing the place up. If he had put the $5,500 in risk-free, hassle-free, 5-year Treasury bonds in 1977 instead, when the going rate was 6.99%, he would have ended up with $7,710 in cash in 1982.

If he had also spent the hours he worked fixing this house at a salaried job, he probably would have made another thousand or two. When you take the extra risk and hassle and time consumption of rehabbing a house, you ought to get more compensation than if you invested in Treasury bonds and took a job cleaning office buildings. Whitney did not get adequately compensated for the extra risk and time he devoted to this property. In other words, this was a lousy, inadequately profitable real estate deal.

So what really happened to the $11,000 Whitney claimed he “made” within three weeks of reading Haroldsen's book. It was just a loan. He had to pay it back and did just that on 12/12/85. Between when he “made” the $11,000 and when he paid it back, he paid interest on it. But that fact has not stopped him from citing his “making” $11,000 in his first three weeks in real estate to prove what a real estate genius he is and thereby sell millions of dollars worth of books, cassettes, seminars, and consulting services. Unbelievable.

‘Financial independence'

On page 18 of Building Wealth, Whitney says, “By the time I turned 23, I was able to quit my job, because I had become financially independent.”

What a guy! But then this is the same guy who told us he “made” $11,000 within three weeks of getting into real estate. Maybe we'd better check out his claim of “financial independence.”

First, let's define it. Whitney's definition is that you are financially independent when you have enough income from “passive sources” to not have to work for a living.

A lot of guys seem to think they're financially independent when they can live off a woman. I would call that being a kept man.

He says he met his wife at Tobin Packing where they both worked. He testified in court around that time that his wife was at work when he got home—at 3 AM! He also testified that he drove a '78 Toyota pickup and that his wife drove a '75 Plymouth. This would be two years after Whitney says he became financially independent. Apparently, he was financially independent, but his wife was not.

Was he loafing? No. Spinning his wheels would be a better description. He was working as a salesman for the Confederation of Organized Purchasers until 2 AM according to his court testimony. Some financial independence. The Confederation went bankrupt not long afterward. Whitney says he never received a penny for his work for them.

Confederation of Organized Purchasers, Inc.

What job was that? He was a salesman for what he described as a furniture co-op. Actually, it was the Confederation of Organized Purchasers, Inc., which appears to me to be a scam. The initials spell COOP, but in a news story on page 9 of the 1/26/82 Schenectady Gazette, their attorney claimed they were not a co-op, but rather were merely a corporation. That story said the attorney general had issued a subpoena for COOP's records and was investigating it. They went bankrupt on 1/29/82. In bankruptcy, the owners filed suit against former officers alleging that they had mishandled assets. At the time of the bankruptcy, they closed the store where Whitney had worked. The phone company cut off their lines because of bad debts.

Whitney says he invested and lost $12,000 in it. Plus his job was to get consumers to pay $550 to join it, which he apparently did. Presumably, they lost their $550 “membership” fees, too. An officer of the company who insisted on anonymity in the Gazette story said, “A lot of people invested because of me. I lost a lot of my own money, and my parents lost money.” That person could be Whitney, although he would have had to be referring to his in-laws with the word “parents.”

455 Hulett

So what real estate did he own on 11/18/78, the day he turned 23, the day he claims to have been “financially independent?” He bought the aforementioned 3160 Guilderland Avenue, a single-family house in Rotterdam, NY on 3/11/77 for $18,500. Around August of 1977, he says he bought a duplex at 455 Hulett Street in Schenectady. Actually, that's not in Building Wealth. In Building Wealth, he claims , “I made my first fortune in upstate New York,” but refuses to name the city (Schenectady). You can only get the details of this “first fortune” by going to Schenectady (which I did) or by reading his 1984 books about Overcoming… (which I also did).

On 6/9/78, he paid $6,500 for 455 Hulett—a slum duplex—putting $1,500 down.

As far as I can tell, that is the entirety of Russ Whitney's real estate dealings before his 23rd birthday on 11/18/78. So how did he become financially independent “by the time [he] turned 23?” He bought a house for $18,500, then refinanced it for $25,000 and bought a slum duplex for $6,500. That's it, folks. Does that sound like financial independence to you? Me neither.

The ‘first fortune' continued

On page 47 of Building Wealth, Whitney says, “By the time I was 25 (11/18/80), I owned well over $1 million in real estate and was owner or partner in several other businesses.” Well, let's just see about that.

On 12/4/78, he bought 11 Eagle Street for $36,700 with $4,0000 down and a seller wraparound land contract on a land contract (no deed until you pay off the seller financing) for $32,700. The underlying first mortgage had a balance of $20,391.49 and would last until 9/1/95. Whitney sold this property on a land contract along with his home at Guilderland and the other Eagle Street properties on 1/29/82 and again (??) on 6/29/82. Whitney quit claim deeded 11 Eagle Street to N. E. Management Properties, LLC on 5/26/02. I do not know who N.E. Management is. The original owner recorded a discharge of the wraparound land contract on that same date.

23-25 Eagle Street

On 1/9/79, Whitney signed a land contract to buy 23-25 Eagle Street (duplex), Schenectady from Bill Adkins (not his real name) of Jacksonville, FL for $13,094.26. $2,500 down and a 5-year, 8.5% mortgage for $10,594.26.

Oddly, there was also a $12,905.74 first mortgage on the property owed to Schenectady Savings and Loan. The land contract said Whitney assumed and agreed to pay that mortgage, but it also said that the seller—Adkins—would make the payments on the Schenectady Savings and Loan mortgage for the first five years.

The land contract said the security deposits, which seem to be one month's rent, were $155 on each apartment. It also said Whitney had to buy $23,500 of fire insurance, indicating the seller thought that was the value of the building.

20 Swan

On 7/3/79, Whitney entered into a land contract to buy 20 Swan Street for $25,500. $1,500 down and a wraparound land contract of $24,000. The underlying first mortgage to Schenectady Trust Company was $16,651.33 and Whitney agreed to assume it. The land contract demanded fire insurance of $25,500 indicating the seller thought that was what the building was worth.

16 Eagle Street

This may be the most screwed-up real estate deal I have ever seen. See if you can follow it. I can't.

On 10/2/78, a Schenectady area couple deeded 16 Eagle Street in Schenectady to a man I will call Bill Adkins who lived in Jacksonville, FL. This deed was not recorded until more than a year later on 12/28/79 (deed book 1033 page 835-6). I don't know why the delay. Bill Adkins is not his real name. I will not use the real name because he may be a private person. According to page 7 of Overcoming…, this is a 6-plex.

On 9/14/79, Whitney and Adkins, got a $15,000 mortgage from Pioneer Savings Bank (Mortgage book 955 page 135-8 recorded 11/8/79). This sounds like a HUD Title I home improvement loan. The document itself looks like a Title I mortgage. Overcoming… says he and Adkins got a $15,000 home improvement loan, but I do not understand how they got it before Whitney became one of the owners. On page 7 of Overcoming…, Whitney says “We also agreed to co-sign a note to the bank for another $15,000 Home Improvement Loan” [emphasis added]. I can see how Whitney could co-sign before he was the owner, but the recorded documents do not show any cosigning. Rather, they show Adkins and Whitney as co-owners mortgaging the property. The mortgage also indicates that both Adkins and Whitney resided at 3160 Guilderland, Whitney home. Very strange.

On 9/21/79, Bill Adkins deeds 16 Eagle Street to Lucy Adkins who lives at the same address as him in Florida. This document is not recorded until 12/28/79 (Deed book 1033 page 837-8).

On 9/28/79, Lucy Adkins deeds 16 Eagle Street to Bill Adkins and Russ Whitney. This document is not recorded until 12/28/79 (Deed book 1033 page 839-40).

On 10/22/79, Bill Adkins and Russ Whitney give a mortgage for $25,000 to Lucy Adkins. It is recorded 12/28/79 (Mortgage book 956 page 225-6).

On 7/10/80, Bill Adkins and Russ Whitney give an eight-year option to buy 16 Eagle Street for $50,000 to Whitney's favorite Schenectady Realtor® (Deed book 1039 page 44-5). As with the subordination agreement described above, the option was so amateurishly drawn that it was probably not enforceable. In order for an option to be enforceable, it generally needs to have a complete purchase agreement attached to it. This one did not. It was a typical seminar guru option that just stated the address and price with no terms or detailed description like you would see in a normal purchase. Judges generally will not enforce such an option on the grounds that real estate purchases require more detailed agreements.

Whitney characterizes this as a “partnership” in Overcoming… (page 7). He says he put no money down, but that they split the profit and depreciation deductions 50-50. He also says the place was worth $75,000 after rehab. That raises the question, why did you sell an option to purchase it for $50,000 any time during the next eight years?

What about the tax implications? If Whitney owns half of a $75,000 6-plex with a $25,000 mortgage, he has $75,000 - $25,000 = $50,000 ÷ 2 = $25,000 of equity. If he paid nothing for that $25,000 of equity, he has $25,000 of taxable income of some kind, or maybe a gift. Most likely it is compensation for Whitney's management services. That is ordinary income the day you receive it. Whitney does not mention that this is taxable income or that he paid a tax on it. I would be surprised if he did.

In this case, Whitney says he actually spent the $15,000 on improvements plus another $4,000. He also says he had a $15,600-a-year rent roll. I cannot confirm that.

Whitney says he sold the property to his favorite Realtor® in 1980. Whitney claims the sale price was $51,000, that the Realtor® assumed the mortgage to Lucy and the Title I mortgage to Pioneer, that Adkins took back a third mortgage for $5,500, and that Whitney got $5,500 in cash. I found no record of the sale to the Realtor® or the third mortgage to Adkins in the county recorders office.

Furthermore, paragraph 10 of the Title I mortgage says, “the whole of said principal sum shall become due in the event of sale, or transfer of the premises by the Mortgagor.” This is known as a due-on-sale clause. It means that the sale of the property to the Realtor® puts the property in technical default on the improvement loan, thereby giving Pioneer the right to make the borrowers immediately pay off the entire balance. To put it another way, Whitney is claiming that the Realtor® assumed a mortgage which was unassumable.

If the option was enforceable, the Realtor® was nuts to exercise it in 1980. Remember, the option had an expiration date of 1988 and a fixed price of $50,000. What person in his right mind would exercise such an option before 1988? You would let it sit there appreciating until the last month before it expired in 1988. Why put up with the hassles and risks of ownership for eight years when you can get all of the appreciation above $50,000 with no effort whatsoever by simply waiting until 1988 to exercise the option?

This, in turn, means that Whitney was nuts to grant such an option. He would have you believe he was some kind of overnight success in real estate. No. He was a bumbling incompetent for the most part initially. This option is an example of his incompetence.

Summing this deal:

Cost: $25,000 mortgage to Lucy + $15,000 mortgage to Pioneer + $4,000 additional improvements = $44,000

Sale price: $51,000 (Not in recorder's office?)

Cash in: $4,000 for additional improvements

Cash out: $5,500 (Not in recorder's office?) to Whitney

Net cash out: $5,500 - $4,000 = $1,500

Seems like Whitney could have made the $1,500 more easily by taking a part-time job shoveling french fries at McDonalds for a year.

Adkins also left with a $5,500 third mortgage—if you believe Whitney's book in spite of the lack of corroboration in the recorders office.

This is not an adequately profitable deal. Adkins and Whitney bought and sold a property, plus they borrowed $15,000 and spent $19,000 on improvements. Whitney had to manage the property for a year and supervise the $19,000 worth of improvements. That's a lot of work and risk. If Whitney had taken a job as the manager of a 6-unit building for a salary, and a job of supervising a $19,000 rehab for a salary, he probably would have made more than he did in this deal as part-owner. Whitney tries to make this sound like some shrewd real estate deal. In fact, it was a whole lot of effort and risk for hardly any reward. Real real estate investors laugh at deals like this.

Furthermore, unless someone can find the recorded documents indicating the sale to the Realtor®, it would appear that Adkins and Whitney still own this property.

812 Grant Avenue

On 11/15/79, Whitney entered into a land contract to buy 812 Grant Avenue for $10,000. $1,252.41 down and a 10-year, wraparound land contract for $8,747.59 with an underlying first mortgage of $4,247.59 to Mohawk National Bank.

8 Hawk Street

On 12/3/79, Whitney entered into a land contract to buy 8 Hawk Street, Schenectady for $23,000. $153.23 down. Assume a first mortgage of $17, 846.77, and agree to a land contract second of $5,000 10% for ten years.

So was this “well over 1$ million in real estate” by his 25th birthday (11/18/80) as Whitney brags? No. Here's what he apparently owned on his 25th birthday including what he paid for it.

Purchase price
Nature of ownership
3160 Guilderland $20,000 Legal owner
455 Hulett $6,500 Legal owner
23-25 Eagle Street $13,094.26 Equitable owner*
20 Swan Street $25,500 Equitable owner*
812 Grant Avenue $10,000 Equitable owner*
8 Hawk Street $23,000 Equitable owner*
$98,094.26 .

16 Eagle Street is not on this list because he says he sold it before he “turned 25.”

* An equitable owner is one who owns everything but the deed. When you use a land contract to buy, you do not get a deed. You usually get the deed when you pay off the land contract, which is the equivalent of a seller mortgage. Although, Whitney's land contracts say his relationship with the previous owner is that of landlord and tenant. For example, paragraph 7 of the 11 Eagle Street land contract says, “…it is mutually agreed that until delivery of the deed, as herein provided, the payments hereunder shall be regarded as rent and the relationship between the parties shall be that of landlord and tenant.” [emphasis added]

If you believe that, Whitney did not buy the above properties. He rented them. That would make his claim that he “owned well over $1 million in real estate” [emphasis added] even more preposterous. At best, he was the legal owner of his $25,000 home and $6,500 Hulett Street and the equitable owner of another $71,000 of slum properties. I think the best way to describe his situation to today's beginning investors was that his situation was similar to today's lease-option tenants. If they behave and make all the payments on time, they may become legal owners of the property.

However, I must say that I do not believe the landlord-tenant relationship. This is yet another of the amateurishly drafted legal documents with Whitney's name on it. As “buyer,” he probably did not draft this land contract, but he seems to have associated with a bunch of amateurs in his Schenectady days. I believe the law would say that the landlord-tenant portion of the land contract agreement was unenforceable.

Clearly, the agreement is like a sale and mortgage. Clearly Whitney would build up equity in the property over time—although because these were in a slum neighborhood—it would probably take a lot of time to build up much equity. But still, the law abhors forfeits. If Whitney were to fall behind in his payments, this agreement says he would lose any equity he built up. That's not fair to Whitney. If he fought eviction on that basis, the court would probably agree with him that he is an equitable owner, not a mere tenant, and force the previous owner to foreclose. In that case, Whitney would get any excess proceeds above the amount needed to pay the balance due on the land contract.

Here's a rather odd discussion of land contracts. I only offer it because it comes from one of Whitney's publications: Step 7 page 4 of his MPAP manual. “This makes [the land contract] a favorite of the land hustler, because it doesn't disclose what will appear on the title in, say, twenty years. It is primarily used when the seller has a title problem, or the buyer, a credit problem. The buyer risks receiving clear title if the seller runs into financial difficulty down the road.”

I'm not sure what that paragraph means, but it should be noted that Whitney bought almost all his New York properties on land contracts and sold them the same way.

‘…owner or partner in several other businesses'

On page 47 of Building Wealth, Whitney says that, “By the time I was 25, I owned well over $1 million in real estate and was an owner and partner in several businesses.” I just analyzed the $1 million in real estate. Now let's look at the “several other businesses.”

While at the Schenectady County court house, I searched the assumed name indexes for Whitney's name. Zero hits. I searched every index from 1976 to the present. He never registered any assumed names. If you operate under an assumed name, you are required to register.

There are a number of reasons for this. One is so the public can find out whom they are dealing with. If you have not registered, you cannot sue anyone with whom you did business under the assumed name. In some cases, registration for the assumed name might reveal to the authorities that you are engaging in an activity for which you are supposed to be licensed—like construction.

Does Whitney even know about filing an assumed-name registration? Yep. He discusses it on page 69 of Building Wealth—says “you can do so for a nominal filing fee.” He says you don't have to file if you are only working on your own properties. That's one way to put it. Another way would be to ask, “What possible purpose could you have for using an assumed name for a ‘company' that only works on your own properies—other than defrauding a lender into thinking it's a company that does business with people other than you?”

Is it possible to be in business without registering an assumed name? Yes. I do it. My business name is John T. Reed Publishing. Why don't I have to register? Because my name is in the company name and the additional word—“publishing”—simply states what I do.

So was Russ Whitney operating some business under the name Russ Whitney this or Russ Whitney that? Not that I have found. I looked through the old Schenectady area phone books from the late seventies and early eighties. I found no listings for Russ Whitney other than his residences.

Has Russ Whitney ever claimed he operated a business under another name? Yes. On page 89 of Building Wealth, Whitney says he used the name “R&I Enterprises” (R & I are the first initials of Russ and his wife) on an early business card. On page 123, he tells of using the name “R&I Contracting” to write up estimates for improvements to his buildings. On page 151 of Building Wealth, he mentions R&I Contracting again and refers to “creating a company for loan purposes.” Creating a company “for loan purposes” seems to mean to deceive a lender into thinking the improvement estimate that is really from you to you, is from a third party dealing with you at arms length, or that an employment and income verification from you about you is from a third party employer about you.

Did Russ Whitney register “R&I Enterprises” or “R&I Contracting” with Schenectady County? No. Should he have? Yes. Why didn't he? I don't know, but one possible reason might have been to prevent lenders from learning that it was not a third-party contractor.

Whitney does say that he got a real estate salesman's license in April of 1979. He said elsewhere that the license hung in the offices of Plumb Realty and Plumbannd of Rotterdam, NY—the town where he lived. Was he an “owner or partner” in either of those businesses? Not that I have been able to determine. Larry and Shirley Plumb have passed away. Whitney appears to have been just a salesman. To be an owner or partner in a real estate brokerage, you generally have to be a licensed broker, not just a licensed salesman. You can see my comprehensive list of the various affiliations Whitney has had or may have had during his adult life at www.johntreed.com/Whitneyaffiliations.html.

COOP, Inc.

The only other Schenectady affiliation I have been able to identify is the aforementioned Confederation of Organized Purchasers, Inc. Was he an owner or partner there? The pertinent evidence is a bit comical.

A lot of it came out in Whitney's court testimony. An attorney was trying to get Whitney's employer, Confederation of Organized Purchasers, Inc. to be a defendant because he figured they had some assets to go after. During the litigation, there was conflicting testimony about Whitney's role in the company. Indeed, some of Whitney's own statements conflicted with other Whitney statements.

First, Whitney said he invested—and lost—$12,000 in the company. That makes it sound like he was some sort of principal. But let's go to the testimony.

Joe G.

Meet Joe G. He is not mentioned in Building Wealth. Nor is his company Confederation of Organized Purchasers, Inc.—except by the vague reference to Whitney's being “an owner or partner of several other businesses.” To meet Joe G., you need to read Whitney's earlier book Overcoming the Hurdles and Pitfalls of Real Estate Investing.

Whitney speaks highly of Joe G. in many respects—in a chapter called “Getting Off Track Can Be Costly.” Whitney calls him, “…one of the slickest, most knowledgeable salesmen I've ever met.” Whitney says Joe G's “salesmanship” was a “con scheme,” but that the “co-op itself was legitimate.” I don't see how the co-op, of which Joe G. was president, can be legit when he is a “con schemer.”

Then there's that pesky problem of COOP, Inc.'s own attorney denying that it was a co-op. I guess the corporate initials were just a coincidence—as is the fact that Joe G. quit the Confederation of Organized Purchasers and started another, competing firm with those same initials: Consumers Organization of Purchaser, Inc. There's also the question of why the “co-op” went bankrupt two years after it was founded if it was so legitimate.

Whitney goes on, “Joe had a huge diamond ring, a new Corvette, an Eldorado Cadillac and definitely had the aura of success at the age of 34.” (p. 20 of Overcoming…) Sounds like a pimp or drug dealer to me. In 1/80, Whitney went to work for Joe G. so “he could train me at sales and teach me how the co-op worked.” Whitney claims to have been “mesmerized” by Joe's charisma. He worked there for a year and says he made no money—and he only paid $12,000 for this privilege.

But still, “Joe taught me everything about the psychology of sales. This has helped me grow and is benefitting me tremendously in my personal life and my business of real estate investment.” Russ Whitney is the first guy I ever heard of who got swindled out of $12,000 and a year's pay yet continues to credit the swindler with being a great influence on his life. I think the fact that he speaks so highly of a swindler tells us more about Whitney than it does about Joe.

What was Whitney's title?

So what the heck was Wihtney's role or title at COOP? On page 20 of Overcoming…, Whitney says Joe “…offered to help me open a satellite co-op and pay him an override on membership sales.” So Russ Whitney is going to open the co-op and Russ is going to pay Joe. Remember that.

As I mentioned above, Whitney says he went to work so he could get trained. That would make his title sales trainee.

Whitney's deposition

On 6/8/81, when he was 25, Whitney gave a deposition under oath in the above-mentioned litigation. My comments about his answers are in brackets.

Q: What is your occupation now?

A: I have a real estate license. Real estate sales agent. [What happened to “owning well over $1 million in real estate and being owner or partner in several businesses?”]

Q: Are you doing business under an assumed name presently?

A: No. [What happened to R&I Enterprises and R&I Contracting?]

Q: Are you working for any particular broker?

A: Plumb Realty and Plumbannd.

Q: So how long have you been engaged with them?

A: About two and a half years, three years, on and off with them.

Q: Do you have any other occupation other than that?

A: Salesman. At the time of this incident I was employed as an Area Coordinator for the Confederation of Organized Purchasers. [Another title appears: area coordinator. Again, what happened to “owning well over $1 million in real estate and being owner or partner in several businesses?”]

Q: Organized who?

A: Purchasers. Coop.

Q: And what was your title with that organization at that time?

A: I was an Area Coordinator, Supervisor. [Now he's a supervisor]

Q: And how big an area did you cover?

A: I covered six counties surrounding the Capital District.

Q: Back in November of 1980 did you have any other jobs that you were involved in?

A: No, that was my full-time occupation. [Again, what happened to “owning well over $1 million in real estate and being owner or partner in several businesses?”]

Later regarding how many times he had driven down the road where he hit the pedestrian:

Q: Approximately how many times previously?

A: Oh, every day from September. I had opened up a Saratoga outlet for the corporation I was involved with, and I operated that as a manager and coordinator, so I traveled it every day, six days a week. [Now he's a “manager” and he opened the outlet.]

Q: Were you on commission at that time or were you paid a yearly salary?

A: Salary plus commission. [I thought this guy was financially independent two years ago by virtue of being self-employed. Now he's got a salaried job?]

Attorney affidavit

Another document on this score is the affidavit of the attorney in the litigation in which Whitney testified. They were arguing about whether a summons had been served properly on COOP. [Again, my comments are in brackets]

10. Service [on COOP] was made on June 25, 1981 by service upon Russell A. Whitney…

11. [The process server said that] Whitney stated that he was the person in charge of the Woodlawn Plaza Store, State Street, Schenectady, NY, and that he was an officer of the defendant corporation. [Process servers generally do not identify their purpose until after they have asked you to identify yourself and your position. If that's the case, Whitney probably thought he was talking to a prospective customer when he claimed to be an officer of the corporation.]

Joe G.'s deposition

Discussing Whitney and another man

A: One was fired and one was quit.

Q: Who was fired and who quit, which one?

A: There was only one but I don't know which one was which.

Q: You say between H.M. and Russell Whitney one was fired and the other one quit.

A: One said he quit and the other one said he was fired.

Q: In any event they both left.

A: In any event Whitney left.

Q: Are you telling me Whitney did not have any official capacity with the corporation at least as far as you understood back in November, 1980?

A: Right. [Remember Joe G. is the president of the corporation]

Q: Do you recall an individual by the name of Russell Whitney?

A: Yes.

Q: And was he affiliated with your corporation?

A: He was a salesperson.

Q: Okay. And how were [the salespersons] paid?

A: They were paid on a commission. Sometimes we paid them a draw versus commission. [A draw is an advance or loan to be paid back out of future commissions. It is not a salary.]

Q: And was there someone in [Saratoga] that was in charge of opening and maintaining that office?

A: H.M. [Whitney claimed he opened the office]

Q: Did Russell Whitney have any other responsibilities with your corporation other than being a salesman?

A: None.

Q: Are you saying that he did not have the responsibility of opening and operating that store in Saratoga?

A: That's correct.

Q: What if I told you that Russell Whitney told me he was in charge of the operation of the Saratoga store. What would your comment be?

A: Mr. Whitney was always a very cocky person who thought he could run the whole show.

Summary on ‘owner or partner in several businesses'

So was Whitney an “owner or partner in several businesses” when he turned 25? It would appear not. Here are the only affiliations I could find for that period:

R&I Enterprises Just another name for himself and wife Apparently just a business card company name to get people to take him more seriously than they would if the card just said Russell A. Whitney
R&I Contracting Just another name for himself and wife Apparently used only for the purpose of misleading lenders as to the source of an improvement estimate and to make it look like an outside firm was general contractor on improvements to be done by Whitney on his own properties
Plumb Realty Licensed salesman No mention of his ever earning a commission other than on his own purchases or sales
Confederation of Organized Purchasers, Inc. Commissioned salesman and shareholder Lost $12,000 investment and was paid nothing for a year's worth of work—obviously not owner or partner

He was an “owner or partner” in the two R&Is, but they are simply restatements of his name in initial form, not a separate company in any real sense. He was associated with Plumb Realty and COOP, Inc., but appears to have made little or no money as a result and was apparently not an owner or partner in either. He mentions no other companies during his New York period in any of his books, nor do the public records show any other Whitney affiliations in Schenectady County. So until he comes forward with the details of the companies in which he was an owner or partner on 11/18/80, I am inclined to believe that there were none.

‘One of America's youngest self-made millionaires by the age of 27'

The back cover of Building Wealth says, “…he became one of America's youngest self-made millionaires by the age of 27.”

He turned 27 on 11/18/82. He lost a civil suit on 10/27/87. The judgment in that suit was entered against Whitney on 1/14/88 in the amount of $1,190,809 (Schenectady County Judgment Index 82-860). Whitney's homeowner's insurance company—Aetna—paid $100,000 under that policy. That left $1,090,809 for Whitney himself to pay. The winning attorney, said Whitney subsequently threatened to file bankruptcy if the winners forced him to pay the whole judgment.

By threatening bankruptcy, Whitney was stating or implying that he was unable to pay the judgment amount—$1,090,809 in February of 1988. That, in turn, makes it extremely unlikely to me that he had a net worth of more than $1 million on his 27th birthday: 11/18/82—five and a half years earlier.

Above, I figured that Whitney owned $98,000 worth of real estate on 11/18/80. If he was a millionaire two years later, he must have made $1,000,000 - $98,000 = $902,000 in the interim. Did he?

8 Hawk resale

On page 12 of Overcoming…, Whitney say 8 Hawk Street closed 11/3/79. Actually, it was 12/3/79. And he says, “…my profit when I sold it a year and a half later was and still is a handsome one.”

Actually, he sold it on a land contract on 1/29/82—more than two years later—as part of a three-property deal that also included 20 Swan Street and 455 Hulett Street. Was it a “handsome profit?” Take a look:

Purchase price
Sale price
8 Hawk Street $23,000 .
20 Swan Street $25,500 .
455 Hulett Street $6,500 .
Total $55,000 $72,000

Not bad, but it doesn't constitute much progress toward the $900,000 he needs to be a self-made millionaire at age 27 later in 1982.

But let's look at the big picture of this sale date

On page 47 of Building Wealth he says, “I was financially independent because of the income my properties and businesses generated [What businesses?…Oh, never mind], so I decided it was time to investigate investment opportunities in other parts of the country.”

Whitney says his decision to move to Florida was caused by better weather and growth prospects.

In March or April of 1981, two or three months before he was scheduled to give his deposition in the above-mentioned court case, he and a buddy drove to Florida to investigate investment opportunities (Overcoming… page 26). While there, he agreed to buy some vacant lots requiring $3,000 down.

Upon returning, they decided to move to Florida in September of 1981. Here is how Whitney characterizes his situation between April and September 1981 on page 28 of Overcoming… “You talk about pressure. I was low on capital because of my co-op escapade and had to come up with $3,000 for the lots in Florida to boot! At this point, Ingrid and I had about $3,500 or $4,500 in the bank. The Lincoln Avenue [purchase] was coming up and I needed $1,500 for closing costs and down payment there. Oh, brother.”

Sounds like one of those cliffhanger movie serials, doesn't it? Except didn't I just quote him on page 47 of Building Wealth saying he decided to go to Florida because of his financial independence and income from his properties and businesses? Which book do you think is more accurate? The one written in 1984 (Overcoming…)—or the one written in 1994 (Building Wealth)? According to the Building Wealth version, he leisurely decided to leave town because he was bored with playing in his money bin all day. If his situation was as he depicted in Building Wealth at that time, he was under no pressure whatsoever. Why not just sell off properties and move whenever you sell enough of them? What's your hurry?

Maybe the titles of his books should be Overcoming the Hurdles and Pitfalls of Investing in Real Estate (1984) and What Hurdles and Pitfalls? (1994). Building Wealth is more in tune with the no-cash, no-credit, no-risk, no-effort marketing pitch needed to sell get-rich books in the nineties and thereafter.


On page 31 of Overcoming…, Whitney tells us about “Satan.” Satan is the buyer of many of his property who caused Whitney all sorts of problems because of his dishonesty—or at least that's Whitney's side of it. Whitney calls him Satan because, “…my real description could not be printed.”

Rooming houses

One of Whitney's big tricks is to convert single-family houses to rooming houses. He says it's easy. In fact, it is generally illegal because of zoning. Whitney says in the book to check the zoning. Furthermore your neighbors will typically be out in front of your rooming house carrying torches and nooses. Rooming houses rank right up there with tanneries and pig farms (or slaughterhouses) in popularity with neighbors. Also, rooming houses are the sort of densely occupied buildings that trigger such expensive, mandatory, retrofit, safety requirements as fire escapes, crowd bars on exterior doors, sprinklers, and fire alarm systems.

I surmise that he just did it and got away with it a number of times, but I do not think it's appropriate advice in a how-to book for beginners unless you are going to explain how to get approval from the local government for the conversion. Also, the book should explain the unique management and safety challenges of such properties. He does get into the management issues in some detail on pp. 107 to 113.


Whitney quotes various statistics and studies that he does not identify—like the real estate urban legends that 95% of people end up in poverty if they do not invest in real estate and that the vast majority of the rich became so through real estate. The recent Forbes cover story about U.S. billionaires says only 14 of 243 or 9.8% got rich through real estate.

And when he does identify, some of the sources seem unlikely. For example, he quotes Abraham Lincoln, “Things may come to those who wait, but only those things left by those who hustle.” Doesn't sound like Abe's style—or even phraseology that anyone used in the 1860's. However, a Whitney employee did some extensive research on this and found that someone had asked the same question I did at a site about Lincoln and linguistics on the Net. Son of a gun! Turns out the word was indeed used in that era with that meaning and many people claim Lincoln said it. I stand corrected.

He attributes another quote to C.W. Gran. I never heard of him, nor have any of my quotation books, my encyclopedia, or the Google Internet search engine. Whitney's researcher could not find him either.

Positive thinking

Like so many gurus who target novices, Whitney is big on positive thinking and smiling and hates “negativity.” To a salesman like Whitney, negativity is anything that gets in the way of his sale, like pointing out that converting properties to rooming houses is very difficult to do legally.

The chapter in the book where Whitney sounds most skilled is also the one that is the scariest—the chapter on salesmanship. I and others have commented that the mass market real estate gurus are far more salesman than real estate experts. I have also noted that being a great salesman generally means that people who know you cross to the other side of the street when they see you coming. His sales chapter is so manipulative it's creepy. If I were to go to one of his “free training” sessions—really a pitch for his non-free seminars and such—I would leave my checkbook and credit cards at home for fear of being manipulated into falling for one of his pitches. I was bemused to see that a couple of other people made that same recommendation on the Internet. Two people who bought Whitney stuff and regretted it said they felt as though they had been “hypnotized” by Whitney or his salespeople.

Some of Whitney's approaches bring to my mind the tactics of religious cults or North Korean prisoner of war interrogators—like keeping the meeting rooms very cold and urging audience members not to listen to “negative” friends or relatives.

Good stuff

Whitney admits to some of his mistakes—almost unknown among mass market gurus. I liked his chapter on how to build and repair credit. The other guys say you don't need good credit to make a fortune in real estate.

I especially liked his chapters on building a business (not necessarily real estate investment) and his final general chapter on how to succeed. They contain decent advice and sound like they are written by a guy who knows what he is talking about because he did it. Many of the mass market gurus sound like impersonators.

Biweekly mortgages

One of Whitney's businesses sets people up to profit from biweekly mortgages. Apparently, you buy software and a computer from Whitney, then you persuade people who have home mortgages to send half the monthly payment to Whitney every two weeks. He then makes the monthly payments to the mortgage lender plus a 13th monthly payment each year. And he sends you a little cut. This extra payment reduces the amount of interest the home-owner pays over the life of the mortgage.

This is goofy. Why would anyone need Russ Whitney or his followers to send in an extra mortgage payment each year? He says they lack the self discipline. So let them get mortgages with shorter terms.

The book is generally quite articulate, although in the biweekly mortgage chapter, Whitney sounds very much like a high school dropout.

I suspect the biweekly mortgage business might trigger laws pertaining to trust and escrow companies and possibly even banks. One would think Whitney would need to be licensed or chartered and have posted bonds to handle large sums of consumer money. And what idiot would trust his mortgage payment to a get-rich guru like Whitney?

He also sounds like dropout Russ when describing how he deposited $1,000 in a local bank, borrowed against it, put the money in another bank, etc. The big trick was that he made the payments on time, thereby establishing many bank relationships.

This is an old chestnut of mass market gurus—and I do mean old. When did this last work—when George Bailey was head of the building and loan in It's a Wonderful Life? There is still such a thing as a relationship with a lender, but you don't establish it by putting $1,000 in an account, then borrowing against it. That is more likely to cause a banker to think you're stupid. Nowadays, your credit rating is based on comprehensive records of your finances and payment history, not just what happens at one bank. They also rely heavily on credit scores like those from Fair Isaac Company (FICO). This idiotic tactic Whitney advocates is from a bygone day before computers.

Cash at closing

Whitney has a chapter titled “Walk away from the settlement table with cash every time you buy.” To experienced real estate investors, doing such a thing is an oddity—like getting a two-dollar bill in change. But with novices, cash at closing is big.

Almost invariably, it's merely a loan that has to be paid back. But novices regard it as found money. One of Whitney's techniques involves a combination of institutional and seller loans that exceed 100% of value. Institutional lenders will generally reject such loans on rental property. He says to negotiate any prohibition against such secondary financing out of the institutional mortgage by telling the banker you “eventually” want to seek a second mortgage. He does not say to mention that “eventually” means tomorrow.

In fact, you can rarely negotiate mortgage terms today. The vast majority are sold or intended to be saleable to the secondary market and must use standard contract documents as a result.

He also advocates characterizing the cash at closing as a “repair and redecorating allowance” from the seller—as if the first lender would not see through that ploy. Or he says you “could” tell them that you want to “consolidate some bills, pay off a charge card,” etc. or that you “have a commission check, tax refund, or family gift due in the next 60 days.” He does not mention that any such statement must be true or you have committed fraud. Concealing secondary financing from an institutional first mortgage lender is generally a civil and/or criminal violation.

Prorating rents

Another cash-at-closing technique he advocates is closing on the 3rd of the month to get a large amount of rent credited to you at closing. I have noted that benefit myself, but I gave the full story. That is, it is to your slight advantage to buy at the beginning of a month when you expect significant positive cash flow and at the end of a month in which you expect significant negative cash flow.

Whitney says to always buy at the beginning of the month. He totally ignores the fact that you will have to pay the operating expenses related to that rent before the next rent due date. In other words, closing on the third of the month is only the slightest good deal and that's true only when the building has positive cash flow. You don't get to keep the rents; only the positive cash flow. The rest of the rent rushes right back out the door to pay the operating expenses and mortgage before the end of the month.

He has similar comments about the rent security deposits you will be credited at closing when you buy rental property. At least here, he emphasizes that the deposits are the tenants' money, not yours. But I see no reason even to mention the security deposits as a cash-at-closing item. In many, if not most states, the deposits must be kept in separate accounts and not commingled with the landlord's money. Even where that is not the case, it is neither prudent nor moral to commingle the funds—even in your mind.

Property management

Most mass market gurus say you never have to worry about property management. You just hire a property management company. Whitney has a different slant on that. He says to start a property management company to manage your own properties. I agree, although I see no reason to incorporate as he advocates. Just do it.

But then he loses me when says to offer your property management services to other owners. He says the fees you get range from 10 to 15%—higher on hard to manage properties. The fees are nowhere near that high. The Institute of Real Estate Management says property management fees range from 4.6% to 5.7% in apartment buildings. That's based on a huge nationwide study they have been doing for decades. He does not mention that you must have a brokers license to be a property manager of other people's properties.

He also says he bills his property management clients at a 100% markup for maintenance labor performed by Whitney's employees and for parts that he buys at wholesale. He says he still charges market or less even after such markups. That seems unlikely. Such markups represent a huge conflict of interest. It would take a saint to resist the temptation. Russ Whitney don't sound like no saint when brags about using fake drivers licenses and such.

A property manager should constantly search for and use the suppliers and subcontractors who offer the best value for his client. But, the property manager, being both decision maker and bidder, could always slightly underbid outsiders and get every job. That would cause outsiders to stop bidding.

The Certified Property Manager Code of Ethics has 2 pertinent canons:

Article VII A CPM shall not represent divergent or conflicting interests, nor engage in any activity reasonably calculated to be contrary to the best interests of his client or client's property unless the clients have been previously notified.

Article VIII A CPM shall not receive directly or indirectly any rebate, fee, commission, discount, or other benefit, whether monetary or otherwise, without the full knowledge or prior consent of the client concerned.

No novice should be encouraged to mark up parts or labor to a property management client without mention of the need for full disclosure and avoiding conflicts of interest.

Jekyll and Hyde

Whitney's book suffers from multiple personality disorder. In some chapters, he is intelligent and wise. In others, he sounds foolish. In some, he is responsible; in others, he advocates behavior which is unethical and/or illegal. Some chapters contain excellent real world advice; others are fantasy land. Even the good stuff is not especially original. Some of the bad stuff, like biweekly mortgages or marking up your labor and parts to clients or converting to rooming houses, is original, but not advisable.

Copyright by John T. Reed

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